Indonesia’s rupiah gained as the central bank held its benchmark rate and unveiled measures to drain excess cash from the financial system. Bonds declined.
Bank Indonesia left its reference rate unchanged at 5.75 percent for a third month, according to a statement in Jakarta today, a decision predicted by all 21 economists surveyed by Bloomberg. The monetary authority said it will raise the rates on its bills and term deposits to absorb surplus funds, and remain in the foreign-exchange market to stabilize the rupiah.
“Sentiment for the rupiah is quite good now,” said Artanavaro Gasali, Jakarta-based head of global markets at PT Bank ICBC Indonesia. “It’s hoped that the instruments outlined can absorb extra liquidity in the market, which would help strengthen the rupiah.”
The rupiah rose 0.4 percent to 9,230 per dollar as of 4:13 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency touched 9,276 on May 4, the weakest level since June 2010.
One-month implied volatility, which measures exchange-rate swings used to price options, held at 7.5 percent for a third day after surging 100 basis points, or one percentage point, from 6.5 percent last week.
“Our expectation for detailed measures in tackling liquidity, and hence inflation, has been answered,” Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA, wrote in an e-mail to clients today. He forecasts the central bank will keep its rate unchanged for the remainder of the year and favors one-month rupiah forward contracts.
‘Too Loose, Too Long’
The yield on the government’s 7 percent bonds due May 2022 climbed four basis points, or 0.04 percentage point, to a four- month high of 6.21 percent, according to closing prices from the Inter Dealer Market Association. It’s added 17 basis points this week.
“We continue to believe that monetary policy is being kept too loose for too long,” Robert Prior-Wandesforde, the Singapore-based director of Asian economics at Credit Suisse Group AG, wrote in a note to clients today, predicting that the central bank won’t raise its reference rate unless inflation reaches at least 6.25 percent. “There are more and more signs that the economy and asset markets are beginning to overheat.”
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